Mumbai: India’s JSW Steel Ltd will invest up to $100 million to acquire coking coal assets in the US, in a bid to save costs and improve efficiency, a senior official told reporters on Monday.
The country’s third-largest steel maker has agreed to acquire a group of mines in west Virginia, one of which is already operational while the remaining will be ready in 24 months, joint managing director Seshagiri Rao said.
“The company is looking for backward integration,” Rao told reporters after announcing its quarterly results.
“This will give huge benefit to the company because of the integration of coking coal, which is a key ingredient for steel making,” he added.
Several Indian companies are looking to secure iron ore and coking coal supplies by acquiring mining assets globally to reduce cost of production.
Iron ore prices have risen nearly three times from last year to around $180 per tonne, while coal prices are at $95 a tonne, up 48% from a year ago.
At its Virginia mines, JSW plans to produce 1 million tonnes of coking coal in the first year of operation and will ramp it up to 3 million tonnes by the third year, Rao said.
JSW, which also owns iron ore mines in Chile, expects its first shipments in September-October 2010, Rao said.
The firm has earmarked a capital expenditure of Rs7,000 crore for FY11 to fund project expansions, Rao told reporters.
Higher demand from auto and construction companies buoyed by a resurgent Indian economy likely to grow at more than 8% will help boost volume growth, going forward, Rao said.
JSW, which is one of the top picks of brokerages with 21 of 32 analysts rating it as “buy”, sees 18% growth in steel output for FY11 to 6.75 million tonnes.
“Demand pick-up in the world is quite good. India-specific, the capital goods sector, the auto sector, the industrial production and manufacturing has been positive,” director Jayant Acharya told reporters during the conference.
JSW Steel, which announced quarterly results on Monday, posted a forecast beating consolidated net profit of Rs610 crore for the quarter-ended March against a loss of about Rs40 crore last year, in line with its Asian peers.
A Reuters poll of brokerages had forecast JSW Steel’s quarterly net profit at Rs530 crore.
South Korea’s POSCO, the world’s No. 4 steel maker, has posted a four-fold rise in operating profit to $1.3 billion, while world’s No. 6 JFE Holdings posted a more-than-triple jump in profit in Jan-March.
Higher realization from sale coupled with lower cost of production boosted JSW’s Ebitda margins to 27.4% from about 15% a year ago, Rao said.
Shares in the firm ended down 0.5% at Rs1,221.15 in a weak Mumbai stockmarket.